Detract from objectivity of financial statements (revs of ISF are not objective, and so too are changes in net assets for year, and expenditures of gen fund and any other funds; everything is subjective)

Obscure fund balance suprlus or deficits (gov transfer s or d to ISF, where not maintained).

self-insurance

when a gov self-insures, it retains the risk itself, irr of whether it accounts for the activity in ISF or gen fund. Therefore, self-ins=no insurance.

The cash flows are divided into four categories:

operating activities;

noncapital financing activities;

capital and related financing activities;

investing activities.

actuarial cost method

means of allocating total cost of expected benefits over total years of employee service; method to etermine amount that they should contribute to pension plan each year;

annual pensoin cost should be based mainly on annual required contribution (take into account interest on, and amortization of past deficiencies).

minimum criteria for acceptabl annual req contribution

contirbution=normal cost + provision for amortizing plan's uaal

actuarial assumptions in accord with act stds board

actuarial value of plan assets must be market related

assumptions as to investment earnings rates and future inflation should be based on long-term projectiosn

an uaal can result from

transition losses

changes in actuarial assumptions

improvements in pension benefits

special termination benefits

reporting pension stuff

gov wide stmts report only on net plan assets; pension plans should reprot their actuarial information in notes to the basic financial statements and supplementary schedules

change between old method and new method?

before new pronouncements, costs were on a pay as you go basis. thterefore, their unfunded obligation may be substantial.

The decrease in plan assets is most likely attributable to

an overall decline in stock prices

9: What criteria should be used to distinguish business from governmental activities?

FASB: Interest paid is operating. GASB: Interest paid

is financing.

3 vs 4 categories

What is the government amortizing?

The government would be amortizing the various deferrals – those resulting from changes in the terms of the plan,

changes in actuarial assumptions and in differences between actuarial assumptions and actual experience

What has been the main criticism of the GASB standard on which the 30 year amortization period is based and what alternative has the GASB proposed?

This range is far too broad and the max number of years too great. Max period is far longer than remaining working lives of most employees.

GASB has proposed immediate write-offs of changes in the plan, amortizing changes in actuarial assumptions over

the remaining average service life

of employees and amortizing differences

between actual and projected investment returns over a period of five years.

Current
standards relating to the “discount rate” have been the subject of controversy
and criticism. What is meant by the
“discount rate” as it applies to pensions (i.e. what exactly is being
discounted and why)?

The discount rate is the rate applied to the

future payments to beneficiaries to determine their present value and to compute the actuarially required contributions to the pension fund and the unfunded liability.

past:Estimated rate of return on

plan assets

current: A “blended” rate reflecting

the estimated rate of return on plan assets to the extent that plan assets areprojected to pay the required benefits and a tax-exempt municipal bond index

rate to the extent that they are not

What is meant by a “cost sharing plan.” In what major will the GASB exposure draft alter current practice in the way
members of a cost sharing plan account for their pension obligations

A cost sharing plan is one in which two or

more employers share the costs of:

·

providing benefits and

·

administering the plan and

·

maintain a

common asset pool.

A single actuarial valuation is made for

all participating employer

What meant by a defined contribution plan and how does it differ from a defined
benefit plan?

A defined contribution plan is one in which the employer specifies the contributions it will make to a retirement plan. In these plans, the employee bears the investment risk.

A defined benefit plan is

one in which the employer specifies the

benefits that an employee will receive as a retiree, typically expressed as

a percentage of the employee’s average compensation for 3-5 years. In these

plans, the employer bears the investment

risks

Morgan City operates an electric utility which provides
services to homes and businesses within the metropolitan area. Consider the following transactions made by
the utility:

·
When new customers first sign up for service,
Hill requires them to put an amount on deposit equal to the estimated charges
for one month’s service. If the customer
pays their bills in a timely manner for 24 months, the deposit plus 2% interest
is returned to them.

·
The debt covenant on revenue bonds issued by the
utility requires that $1M be set aside each year that the bonds are outstanding
to provide for the retirement of the bonds.

Discuss the treatment of these two items on the
utility fund’s Statement of Net Assets.

Both of these items are examples of restricted

resources. They are treated the same on

the asset side: the amounts are

segregated from unrestricted assets and shown separately as restricted assets,

possibly with a description of the restriction.

The resources related to customer deposits are offset

by a liability payable from restricted assets”

Customer Deposits Payable. As

long as the restricted assets are completely offset by the related liability,

there is no need to restrict a portion of net assets.

The resources related to the bond covenant are not

explicitly offset by a liability and consequently a portion of net assets equal

to the amount set aside for repayment of principal must be shown as restricted.

related organization

voting majority of board, but no impose of will and no financial dependency

affiliated organization

e.g. bookstore,

significant resources?

diff b/w past and current:
Measurement of assets in plan

past: market related

current: fair value

diff b/w past and current:
Amount to be reported as expense in
government-wide statements

past:

Generally would be the

ARC (with an adjustment if the employer

has a net pension liability reported on its statement of net position)

current:

Changes in the employer’s

net pension liability (i.e., total actuarial liability less plan assets). Some of the changes are recognized

immediately; others can be recognized (amortized) over time

diff b/w past and current:
Amounts to be reported by a cost
sharing employer as pension expense and liability

past: Report as an expense the

required contribution; report as liability only the cumulative difference

between required and actual contributions

current: Report as an expense

and liability its proportionate share of

the collective expense and liability

of all employers of the cost sharing plan

normal cost

portion of present value of plan benefits that is allocated to a particular year by an actuarial cost method